Comprehensive Auto Insurance
Is it permissible to get auto insurance on trucks for the purpose of obtaining financial compensation in the event of traffic accidents, auto fire or theft?
Similar to bank transactions, insurance in its various forms is a novel transaction and there is no textual evidence in Islamic law about its permissibility or prohibition.
Therefore, insurance falls under the ijtihad (speculation) of scholars and their research deduced from the general implications of various evidences in primary texts such as the words of Allah Almighty:
And cooperate in righteousness and piety and do not cooperate in sin and aggression. And fear Allah; indeed, Allah is severe in punishment.
And the words of the Prophet [pbuh]: "The examples of believers in their love, sympathy and compassion for one another is similar to the example of a single body; when one of its organs complains, the other organs respond with sleeplessness and fever" [Al-Bukhari].
Types of Insurance
1- Mutual Insurance: where a number of individuals or groups contribute to compensate damages that befall others.
2- Social Security: an insurance program that caters to wage earners and provides security against certain circumstances. This type of insurance is based on the concept of social welfare which is operated by the state.
3- Commercial Insurance: joint stock companies that are established for this purpose.
Mutual Insurance and Social Security
There is almost total consensus (amongst the scholars) that the first and second types of insurance conform to the principles of Islamic law since at their core, they are donations; cooperation in righteousness and piety and fulfill the principle of social welfare and cooperation between Muslims without the objective of making profit. Lack of knowledge and risk do not invalidate mutual insurance and social security. The money received above the value of the premiums is not considered riba [Interest] because they are not in exchange for deferred services but are donations intended to compensate for sustained damages.
There is a fierce contention among scholars concerning commercial insurance which includes Personal insurance. A group of scholars contend that this type of insurance is unlawful because it includes elements of risk which is prohibited in Islamic law, gambling, betting and interest. Others maintain that it is permissible and does not contradict the principles of Islamic law, since it is based on social welfare and cooperation in righteousness and piety and because it is a form of donations and not compensations.
The basic premise on which the latter group of scholars base their opinion is the general meanings of texts from the Qur`an and Sunna as well as rational evidences.
In the Qur`an, Allah Almighty says:
O you who believe, fulfill [all] contracts.
They maintain that the term "contracts" is general and includes all the various types, insurance or otherwise. They further contend that, had this type of contract been unlawful, the Messenger [pbuh] would have clarified its prohibition. Since he did not, the general meaning of the term 'contracts' stands.
The evidence they deduced from the Prophet's teachings includes a report from 'Umar ibn Yathribi, who said: "I witnessed a sermon by the Prophet [pbuh], which he gave at Mina, in which he said: 'A person's property is unlawful upon his brother save what he gives willingly.' The Prophet's [pbuh] directive in this respect is freedom of will.
In insurance contracts, both parties, the insurer and the insured, agree upon taking property in a certain way, making this contract lawful.
From among the rational evidences, scholars who maintain permissibility, cite that insurance policies include contributions made by both parties to the contract, whereby the insured pays a monthly premium and the insurer pays the value of the policy by way of distributing liabilities and assisting the person who faces them—a concept that is free of any legal interdiction.
Furthermore, scholars cite common practice among the basis of permissibility, since customs are among the sources of legislation in Islamic law. Likewise, they urge the permissibility of insurance due to maslahah mursalah [general public interest]. And, since they share many similarities, commercial insurance should take the same ruling as mutual insurance and social security both of which are sanctioned in Islamic law.
This is among the various forms of commercial insurance and it is lawful since it not among the contracts which include the element of gharar [risk] which is prohibited since it is a contract of contribution and not commutation which is nullified by risk. The degree of risk in such a contract does not lead to disputes between the parties involved due to their wide spread practice and prevalence in the various areas of the economic activities of the people; what people hold good and agree upon without it leading to dispute is lawful.